Statement on the 2015-16 Federal Budget

12 May 2015

General response

“The 2015-16 federal budget is a sound, sensible and thoughtful budget which takes pragmatic steps to get Australia’s fiscal strategy back on track while investing in jobs, participation and the capacity of the economy,” Business Council of Australia Chief Executive Jennifer Westacott said.

“The budget deserves to be passed by the Senate. The government has listened to many parts of the community, which is reflected in the measures they have put forward. While measures can always be improved, Australia cannot afford another 12 months of obstruction and denial.

“Passing the budget gives the government the headroom to progress reforms to grow the economy through a better tax system, and improved skills and health outcomes. The projections for a further decline in business investment and lower near term growth highlight the urgency of these broader reforms to create a more competitive economy.

“The government has taken important decisions to preserve the integrity of major spending programs, rather than opting for ad hoc tax increases or other quick fixes that would impair economic growth and job creation.

“The budget is without doubt a shot in the arm to small business, and creates a better environment for business confidence that will drive investment, job creation and economic growth.”

Ms Westacott said that the BCA had called for a reset of the fiscal strategy over 10 years to deliver durable budget outcomes and stronger economic growth underpinned by four fiscal goals:

• Maintaining Australia’s AAA credit rating

• Progressively returning the budget to surplus

• Ensuring the durability of priority services, including an adequate safety net, and

• Ensuring capacity for investments in infrastructure and human capital.

“On balance, while there is clearly more work to be done, the budget is consistent with these goals,” Ms Westacott said.

“The government has taken important steps to bring spending under control and is clearly investing in the capacity of the economy to grow which, together with other reforms to improve competitiveness and growth, should underpin the maintenance of Australia’s AAA credit rating.

“The government’s target of a surplus of one per cent of GDP by 2023-24 is welcome but for this to be achieved there needs to be a clearer long-term plan, including more work to slow the growth of spending through the redesign of major programs so they are durable for the future.

“While spending growth is projected to slow over the forward estimates, spending is projected to ramp up again in the out years to more than three per cent per year, highlighting the growing cost of ageing and major programs and the magnitude of the task in redesigning these programs.

“In terms of the tax integrity measures, we firmly believe that companies should meet their tax obligations and where arrangements do not keep pace with community norms, they should be reviewed.

“The reality is that international company taxation is a diabolically complex area so it’s sensible that the government will be consulting to achieve an appropriate balance between tax integrity and the need to attract foreign investment,” Ms Westacott said.

Ensuring the durability of priority services, including an adequate safety net

“Against the third objective, better targeting of the aged pension, the pharmaceutical benefits scheme and the paid parental leave scheme are essential if these programs are to stay durable over the long term.

“While tightening the assets test for high net worth pensioners is sensible, further changes to pensions should be considered as part of a review of Australia’s retirement income. If we really want to preserve our safety net, we have to target it and make it more efficient for the long term.

“The government has wisely avoided ad hoc changes to the superannuation system ahead of such a review.

“The National Wage Subsidy Scheme – a similar scheme to what we called for jointly with ACOSS and the ACTU - recognises that we need to remove barriers and provide incentives to employers to take on people who are locked out of, or disadvantaged, in the job market. This is a welcome initiative.

“We also welcome the government acknowledging through this budget the concerns about cutting income support for six months for people under 30. In order for it to be effective, it will be important the new arrangements of a four-week wait period for people on income support are combined with intensive support services and skills development.

Capacity building

“On capacity building, the child care package is a sound approach towards encouraging people to participate in the workforce and, importantly, the government has targeted the greatest support to the most disadvantaged families.

“What’s important now is to continue to progress reforms that will grow the economy and create the jobs for people to participate in.

“The additional investment in infrastructure across northern Australia will make an important contribution to the capacity of the economy, provided the projects are properly conceived and assessed.

“The small business package provides some welcome relief by assisting start-ups and helping to keep small enterprises to be competitive. The $20,000 tax deduction for asset purchases will help small businesses to drive productivity and competitiveness which in turn will create jobs.

“While a two-tier company tax rate is not ideal, the impact of these measures is confined to a small part of the economy. It is important for both major parties to remain committed to a lower, more internationally competitive company tax rate for all businesses as fiscal circumstances permit.”

Ms Westacott said that the net effect of the budget was that it sets the scene for a 10 year strategic reform agenda to adapt and grow our economy in the context of major demographic, technological and global economic change.

“Whichever government is in power through the next decade will need to undertake major reforms to our education and skills, health, and retirement income systems.

“Reforms in these areas are dependent on making the fundamental architecture of the federation and the tax system fit for purpose for where Australia wants to be in 10, 20 and 30 years time.”

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